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Thermo Fisher Scientific Inc. (NYSE:TMO) shareholders might be concerned after seeing the share price drop 10% in the last quarter. But that doesn't change the fact that the returns over the last five years have been pleasing. After all, the share price is up a market-beating 99% in that time.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Thermo Fisher Scientific
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Thermo Fisher Scientific achieved compound earnings per share (EPS) growth of 19% per year. The EPS growth is more impressive than the yearly share price gain of 15% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Thermo Fisher Scientific the TSR over the last 5 years was 102%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in Thermo Fisher Scientific had a tough year, with a total loss of 11% (including dividends), against a market gain of about 16%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 15% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Thermo Fisher Scientific , and understanding them should be part of your investment process.